CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Considering the increasing significance of purchasing role and with the idea that this function has the ability to influence corporate profitability favorably, the way purchasing function develops within organizations over time has been a topic of great interest. The evolution of the purchasing function is well acknowledged in the literature. Departing from the passive, re-active clerical viewpoint of the 70’s, the purchasing function has the ability to develop itself in a strategic pro-active function contributing, as much as other business functions, to the creation of sustainable competitive advantages (Versendaal et al, 2005).Cavinato and Freeman (1990) in their studies declared that in today’s changing and dynamic global markets, organizations stressing on the high quality production must focus their purchasing and supply on planning, development and operation. They realized that purchasing groups of many organizations have been slowly developed without a specific plan in response.
In response to today’s unprecedented economic uncertainty, supply managers have adopted a “wait-and-see” attitude. Many are wary of spending their company’s most valued asset: cash. And since inventory is cash’s evil stepchild, companies continue to aggressively reduce inventory levels. In fact, current inventory management practices have regressed beyond “Lean” and are anorexic. As a result, popular Christmas gifts, such as electronics and appliances, may be in short supply. The Institute of Supply Management’s Purchasing Managers Index (PMI) tells a strange and interesting story about today’s supply chain management. The data suggest that today’s organizations have deliberately whittled their inventories down to dangerously low levels. At its surface, uncertainty is straight forward to manage. Factory physics, the science of manufacturing, teaches us that manufacturers have three buffers to manage variability in their businesses: capacity, time and inventory. It is clear when looking at the PMI that most companies are using only one of these buffers: time. ISM reports a long trend of contracting inventories with little or no noticeable increase or investment in capacity.
As a result, lead times for supplies gradually (and now dramatically) increased in the face of a steady trend of increased demand (new orders). The recent and striking increase in lead time is a reflection that much excess capacity is being put to use, leaving time as the only remaining buffer. Lead times have ballooned from 10 to 12 days to 53 days.Purchasing is the act of buying the goods and services that a company needs to operate and/or manufacture products. Many people are ignorant of what purchasing is all about. “Purchasing” is the term used in industries, commerce, public corporations to denote the act of and the financial responsibility for procuring material, supplies and services. It simply describes the process of buying. However in a broader sense, the term involves determining the needs, selecting the supplier, arriving at a proper price, terms and conditions, issuing the contract or order, and following up to ensure proper delivery. It focus is to purchase or obtain materials in the right quantity, in the right quality, at the right price, at the right time, and from the right supplier and delivering to the right place.
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